2.1.3 Employment and Unemployment

• Measures of unemployment: Claimant count


  Its the number of people claiming job seekers allowance (JSA)

  Or

  A measure of unemployment based on the number of people who are claiming unemployment-related benefits

  
  

  It provides a narrow definition of unemployment, as it only includes those actively seeking and receiving government benefits.
• Problems with the Claimant Count

  -Under 18's and Over 60's don't count

  -Some people who claim JSA aren't actively seeking work

  -Some jobs in the black economy but continue to claim benefits

  -Not everyone who is eligible claims the claimant count
• Measures of employment: International Labour Organisation (ILO) and the UK Labour Force Survey


  The ILO defines unemployment as individuals of working age who are without work, actively seeking work, and available for work.

  
  

  The UK Labor Force Survey is the primary source of unemployment data in the UK and follows the ILO definition.

  
  

  It provides a broader and more comprehensive picture of unemployment, including those not eligible for benefits
• Pro/Cons of Labour force survey

  - Internationally recognised BUT costly to compile

  
  

  -Pick up trends in sectors BUT subject to sampling and extrapolation errors
• Pro of labour force survey

  -Potential for analysis of data

  -Better guide for policy makers

  -Generally accepted to be more accurate
• Con for labour force survey

  -Discouraged workers (given up trying to find work/not actively looking for work) and inactive group are left out

  
  

  -The underemployed are considered as fully employed and those on Zero Contracts

  
  

  -High margin of error (in UK it's +/-3%)
• Define unemployment

  The number of people looking for work but who cannot find a job at a point in time

  Or

  individuals who are not currently employed but are actively seeking and available for work
• Define under-employment

  When individuals are employed but their job does not fully utilize their skills and qualifications.

  Or

  Those who cannot find enough hours to work

  
  

  This can result in part-time work, low wages, or jobs below their skill level
• Define full employment

  Full employment is the level of employment reached when there is no cyclical unemployment

  
  

  Or

  
  

  A situation in which all available labour resources in an economy are being used, and there is no significant surplus of unemployed workers
• Define natural unemployment

  -Refers to the Unemployment at full employment or when the labour market is at equilibrium

  
  

  -Its made up of frictional, seasonal and structural (with the assumption of no cyclical unemployment)
• How is natural unemployment calculated?

  Frictional + Structural unemployment / total unemployment rate
• What's the rate of unemployment

  The number of people unemployed as a % of the labour force

  
  

  The labour force includes all those who are economically active - willing and able to work
• Equation for rate of unemployment

  Unemployed/ Labour force x 100
• Significance of Changes in Employment

  Employment Rate: Measures the proportion of the working-age population in employment.

  
  

  A rising employment rate indicates economic growth.
• Significance of Changes in Unemployment

  Unemployment Rate: Measures the proportion of the labor force actively seeking work.

  
  

  A high unemployment rate indicates economic problems.
• Significance of Changes in Inactivity

  Inactivity Rate: Measures the proportion of the working-age population that is not in the labor force.

  
  

  It can indicate a lack of job opportunities or demographic factors.
• Types/ Causes of unemployment (1)

  Structural Unemployment: Occurs when there is a mismatch between the skills of the workforce and the requirements of available jobs. Lack of suitable skills for jobs available

  
  

  It occurs when long term shifts in the structure of the economy impact upon the job market

  
  

  Frictional Unemployment: Temporary unemployment when individuals are between jobs or entering the workforce

  
  

  It mainly occurs through career moves or geographical changes
• Types/ Causes of unemployment (2)

  Seasonal Unemployment: Linked to seasonal variations in demand, e.g., tourism or agriculture.

  
  

  It occurs in when there is a negative output gap in the economic cycle

  
  

  Demand Deficiency (Cyclical) Unemployment: Arises from a lack of aggregate demand during economic downturns.
• Types/ Causes of unemployment (3)

  -Real Wage Inflexibility: When wages are too high, leading to job cuts or an unwillingness to hire.

  
  

  -It occurs when real wage rates are above the equilibrium wage rate
• Causes of frictional unemployment


  -School and college

  -This is short-term unemployment caused by people transitioning between jobs, moving to a new location, or re-entering the workforce after a break.
• Causes of structural unemployment


  -New jobs often require new skills - cost of re-training

  -Unaffordable housing (both to buy and to rent)

  -Employer discrimination against some groups (i.e age)

  -Erosion of skills from long term unemployment

  -Impact of automation on certain occupations

  -Effect of welfare system on work incentives
• Causes of Cyclical Unemployment


  -During recessions, demand decreases and companies lay off workers and cyclical unemployment increase

  -The unemployment rate rises during an economic downturn and falls during a recovery. It's caused by fluctuations in the business cycle.
• Significance of Migration and Skills for Employment and Unemployment

  Migration can impact employment by changing the supply of labor in specific regions. Immigrants may fill labor gaps, but this can also lead to wage pressures.

  
  

  Skills are crucial for employment. A highly skilled workforce is more adaptable and less prone to unemployment in a changing economy.
• Effects of unemployment on consumers

  Reduced income can lead to lower consumer spending, impacting businesses.
• Effects of unemployment on Firms

  High unemployment can lead to a larger labor pool, potentially reducing wage pressures
• Effects of unemployment on Workers

  Lost income, reduced job prospects, and psychological stress
• Effects of unemployment on Government

  Increased spending on unemployment benefits and lost tax revenue, social issues.
• Effects of unemployment on Society

  Social unrest, reduced well-being, and inequality
• Equation for unemployment rate

  unemployed / labour force x 100

  
  

  labour force= unemployed + employed
• Equation for labour force participation rate

  LF part.= labour force / working-age gap x 100